What Are Decentralized Applications (Dapps)?

It’s time to cut out the middleman. Why pay for a company to provide a ride-sharing service when you could use an app that connects you to the riders and doesn’t take a cut? That’s the promise being offered by dapps, or decentralized apps.

Below we’ll give you an overview of what they are, how they work, and some of the challenges these new types of applications face.

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What is a dapp (decentralized application)?

Dapps are decentralized apps. They are like normal apps, and offer similar functions, but the key difference is they are run on a peer-to-peer network, such as a blockchain, using smart contracts.

That means no one person or entity has control of the network. There are other key features, such as:

  • 🖧 It must be open-source and operate on its own without anyone entity controlling it.
  • 🔍 Its data and records must be public.
  • 🟡 It must use a cryptographic token to help keep the network secure.

While these are beliefs many in the blockchain and crypto community think should be upheld, as the industry has matured, there are dapps that use some, a combination of, or none of the above features. More on that below.

What are the benefits of dapps?

Dapps have several exciting aspects:

  • Censorship-resistant – With no single point of failure, it’s very difficult for governments or powerful individuals to control the network.
  • No downtime – Relying on a peer-to-peer system ensures the dapps continue to work even if individual computers or parts of the network go down.
  • Blockchain-based – As they are made of smart contracts, they can easily integrate cryptocurrencies into the basic functionalities of the Dapp.
  • Open-source – This encourages the widespread development of the dapp ecosystem enabling developers to build better dapps with more useful or interesting functions.

What are the weaknesses of dapps?

While Dapps promise to remedy a lot of the key issues faced by regular apps, they do have their downside.

  • Hacks – As many are run on open-source smart contracts, it allows hackers the rare opportunity to probe the networks looking for weaknesses. This has led to a spate of hacks on popular dapps.
  • Usability – A lot of dapps have poor user interfaces, which have put a lot of users off—you can read all our reviews on these services on our reviews page. But, we believe, this is something that’s improving as time goes on.
  • Users – Like many apps in Web 2.0, the more users a dapp has, the more effective the network is at delivering those services. This is often referred to as the network effect. dapps struggle from low user numbers, which can make them less interactive. It can also make them less secure, as a Dapp’s security can often rely on how many users it has.

What dapps are out there?

A good place to start is Dappradar, a website that lists thousands of dapps built on networks including Ethereum, BNB Chain and Polygon.

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Among the most popular dapps at present are (DeFi) applications such as decentralized exchanges, or DEXs. These enable people to swap one cryptocurrency for another without the need for a centralized gatekeeper like you’d find on exchanges like Binance, and Coinbase.

Let’s break these most popular dapps down further.

Ethereum dapps

Many leading dapps are built on Ethereum, a smart contract blockchain. They include:

  • 🦄 Uniswap – a decentralized exchange that enables users to swap tokens peer-to-peer rather than through a centralized intermediary.
  • 💰 Compound – a DeFi lending protocol.
  • 🎰 PoolTogether – a “no-loss” crypto lottery.
  • 🎧 Audius – a decentralized music streaming platform.
  • 🎮 Decentraland – a metaverse platform in which users can interact as avatars, and buy NFTs representing virtual objects or land.
  • 🧜‍♂️ Gods Unchained – An NFT-powered card game.
  • 💲 MakerDAO – a smart contract that enables users to interact with the Dai stablecoin system.

A new way to build a business

Because dapps are decentralized, it has led to a whole new way to build a business: the decentralized autonomous organization, or DAO. One example is Augur, the decentralized betting marketplace.

The creators built the marketplace, released it and now work on completely separate projects, while the network is maintained by its users. You can read our deep dive with the founders, over here or get a speedy overview of the project, right here.

Dapp scams and hacks

Sadly, dapps can be vulnerable to hacks; in the first quarter of 2022 alone, $1.2 billion was stolen in hacks and exploits, according to Dappradar. And the numbers involved are massive. In August 2021, Poly Network was exploited for $611 million; March 2022 saw play-to-earn game Axie Infinity‘s Ronin bridge hacked for $552 million.

Hackers have used numerous techniques to target dapps, including DeFi flash loan exploits and attacks on the cross-chain bridges that enable users to transfer funds between different blockchains. But some attacks have relied on good old-fashioned social engineering; in December 2021, Bitcoin-to-DeFi bridge Badger DAO lost $120 million after scammers conned members of the DAO into approving malicious transactions.

The future of dapps

Dapps are still in their early stages. However, there are already thousands of dapps offering up a myriad array of services: Be it playing games, exchanging money, or growing your own digital felines.

By Q1 of 2022, there were almost 2.4 million daily active users of dapps. But there’s still a long way to go. Before dapps reach the mainstream, developers and the networks they build dapps on still have a long list of challenges to work through, including scalability, security, and UX.

Once they do, the dawn of the decentralized app will be upon us.

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